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By Pat Pitz, DAT Solutions
As legislative deadlines go, Jan. 1 loomed large in California where Assembly Bill 5 (AB5), which makes it harder for gig-economy companies like Uber and Postmates to qualify their workers as independent contractors rather than employees, was set to go into effect.
But one day before the rule was to take effect, a federal judge temporarily blocked the law in order to consider a number of lawsuits, including one from the California Trucking Association. Industry officials said AB5 would remove opportunities for drivers to own their own businesses and work as independent owner-operators in California.
Although the restraining order remains in place, exempting motor carriers from California's AB5 law, not everyone is breathing easier. AB5 also affects freight brokerages that use outside agents—freelancers who perform the same duties as a broker but work off-site and are considered independent contractors.
The usual course of business
AB5 codifies, clarifies, and grants exemptions to a 2018 California Supreme Court decision involving Dynamex Operations West, a parcel-delivery company that reclassified its employees as independent contractors. The court determined that independent contract workers must be treated as employees if their jobs are central to a company's core business or if the bosses direct the way the work is done.
AB5 states that workers must meet three criteria to be classified as independent contractors:
• The worker must be free from control and direction of the hiring entity.
• The work performed must be outside the usual course of the hiring entity's business.
• The worker must be engaged in an independently established trade, occupation or business.
The second requirement is virtually impossible for an owner-operator to meet because trucking is part of the core business.
Out of luck
So what about freight brokers?
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They're probably out of luck, says Chris Burroughs, vice president of Government Affairs for the Transportation Intermediaries Association (TIA), which has been following AB5 legislation and its potential impact on brokerages in California. "The injunction is likely to only exempt motor carriers."
Dozens of professions have won exemptions from AB5, usually on the grounds that they set or negotiate their own rates, among other factors. They include doctors, psychologists, dentists, hairstylists, and accountants.
But Burroughs says employee misclassification legislation is not going away.
Legislators in New Jersey and Washington State are considering AB5-type laws, and during the Obama administration 13 states signed a Memorandum of Understanding stating that employee misclassification is a "huge problem" in the U.S. workforce.
In fact, earlier this month the Democratic-controlled House of Representatives passed the Protecting the Right to Organize Act, which extends protections to union workers and also calls for the ABC test to be used to determine if a worker should be classified as an employee.
"It won't get past the Republican-controlled Senate," says Burroughs.
In the meantime, trucking companies are still on edge about what would happen if the injunction were lifts. Last year, several carriers including Prime and Landstar offered California-based owner-operators the option to leave the state or become a company driver, reclassifying them completely.
Pat Pitz is the editor of the DAT Solutions freight broker newsletter.
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